14 THE QUEENS COURIER • DECEMBER 28, 2017 FOR BREAKING NEWS VISIT WWW.QNS.COM
Now That The Tax Overhaul Has Passed, Here Are Five Moves To Consider Before Year’s End
BY JOHN SAVIGNANO, CPA
Add another item to your holiday shopping list:
last-minute tax planning.
Congress has passed the most sweeping overhaul
of the federal tax code in three decades. The
Republican legislation, which President Trump celebrated
on Wednesday, delivers most of its benefits to
corporations and the wealthy, but there are key changes
that affect individuals.
Unlike the corporate tax cuts, the revisions to the
individual code are temporary and expire in 2026.
Most of them kick in on Jan. 1, and there are steps
you could take in the coming days to maximize new
advantages and minimize the potential hit from
other changes.
Tax advisors are going to be busy the next couple
of weeks.
Here are five things to talk to your advisor about
doing before New Year’s Day.
PAY YOUR PROPERTY TAXES EARLY
The legislation sets limits on the amount of state
and local taxes that people can deduct. Beginning in
2018, couples filing jointly will be limited to an annual
deduction of no more than $10,000 worth of state
and local income, sales and property taxes.
Right now, there is no limit on the deduction and
the change will be a hard hit to many residents of
California and other high-tax states.
Property tax bills generally go out in the fall, with
half the taxes due by early December and the other
half due by April. If your state and local taxes will
be greater than $10,000, you could pay the second
installment bill before the end of this year and should
still be able to deduct it on your 2017 taxes when you
file in the spring, if you itemize.
The legislation doesn’t specifically rule out such a
move. But it does prohibit people from pre-paying
2018 state or local income taxes this year and claiming
them as an itemized deduction for 2017.
“The bill is pretty clear that you will not be able to
prepay, even if you could, your income taxes,” said
Darien Shanske, a tax law expert at the UC Davis
School of Law. “But it’s silent about property taxes.”
Pre-paying property taxes might not be possible
if your mortgage servicer pays them for you from an
escrow account. People should contact their servicer.
MAKE AN EXTRA MORTGAGE PAYMENT
The tax overhaul will nearly double the standard
deductions for taxpayers who don’t itemize, from
$6,350 to $12,000 for individuals, and from $12,700
to $24,000 for couples.
The change is expected to dramatically reduce the
number of filers who itemize because fewer people
will have total deductions above the new levels.
Given that, taxpayers who anticipate itemizing on
their 2017 returns might want to consider making their
January mortgage payment before the end of the year.
Doing so would allow you to deduct an extra
month of mortgage interest that you might not be
able to deduct on your 2018 return if you don’t end
up itemizing because of the higher standard deduction,
McBride said.
The tax bill also limits the deduction to interest on
as much as $750,000 in mortgage debt, down from
the current $1-million limit. People who already own
homes still get the higher limit.
But lawmakers added a provision to prevent people
from a last-minute scramble to buy homes before
the limit goes into effect next year.
Unlike most of the bill’s changes, which take effect
on Jan. 1, a taxpayer must have entered into a binding
written contract before last Friday to be eligible
for the $1-million limit.
GIVE MORE TO CHARITY
Charitable contributions are one of the most popular
deductions. But the number of people who itemize
is expected to fall sharply. If you think you’ll stop
itemizing, you might want to consider making your
2018 contributions by Dec. 31 so you would be able
to deduct what you give to charity.
“This might be the year, if they can no longer itemize
their charitable donations, to clean out the closet
and donate to Goodwill or the Salvation Army
or make that extra contribution to your church,”
said Kathy Pickering, executive director of the Tax
Institute at H&R Block, which provides research and
analysis to the company’s tax preparers.
As with an extra mortgage payment, the move
makes tax sense only for people who believe they
will have enough deductions to itemize on their 2017
return but not when they file 2018 taxes, said Robert
Spielman, a partner at Marcum, an independent public
accounting and advisory services firm.
The key is estimating your chances of having
deductions in 2018 that exceed the new standard
deduction level.
If you’re not going to exceed that, maybe you
arrange with your parish and prepay your 2018
pledge in 2017.
DEFER OR ACCELERATE INCOME
Individual marginal tax rates are shifting lower, so
you’ll generally pay less taxes on the same amount of
earnings in 2018 compared with 2017.
People who are self-employed, such as contract
workers or freelancers, should consider holding off
on sending invoices so the payments come in 2018.
For most people, their federal tax bracket is going
to be lower under the tax bill, so it would make sense
to defer.
Depending on the size of your family, however,
you might not want to make that move. Instead, it
might make sense to accelerate any possible income
into this year when you might owe less taxes.
The tax bill eliminates the existing $4,050 exemption
that can be claimed by taxpayers for themselves,
their spouses and their dependents and also reduces
taxable income. Those exemptions currently phase
out at upper-income levels.
Some of that change is offset by the legislation’s
doubling of the child tax credit to $2,000 and making
it applicable to higher-income households, as well as
adding a $500 family tax credit for dependents other
than children.
It all means that some people might have more offsetting
family-related deductions this year.
If you have a big family, three or more kids, it
might make sense to accelerate the income into this
year before the tax bill takes effect next year.
TAKE ADVANTAGE OF EXPIRING DEDUCTIONS
Under current law, employees are allowed to
deduct unreimbursed business expenses if they total
more than 2% of their adjusted gross income.
They include a home office, depreciation on a personal
computer required for the job, dues to professional
societies and subscriptions to journals and
trade magazines.
All of those deductions would disappear through
2025 under the Republican tax bill, so you probably
want to move as many of those expenses as you can
to this year, such as by re-upping professional journal
subscriptions.
A key to tax planning is figuring out which deductions
to take in one year and which to postpone
until the next.
This year’s a little different because we have a lot of
deductions going away.
John Savignano is a partner with Savignano
Accountants & Advisors located at 47-46 Vernon
Blvd., Second Floor, in Long Island City. If you have
any questions or require additional information,
please call John at 718-707-0955.
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